Free Access | April 1996

Credit Accessibility to the Rural Poor in Uganda

Authors/Editors: John Mary Matovu ,  Okumu Luke

Abstract:

The design of traditional credit markets reflects the concern to policy makers that a shortage of affordable credit constrains growth in the rural sector in Uganda and prevents rural poor's integration into the market economy. This has encouraged Uganda government and other non-government organisations to establish specialised credit institutions to channel credit to the rural poor. For example, the Rural Farmers Credit Scheme of the Uganda Commercial Bank was instituted by Government to provide credit to the rural poor. The results ofthis scheme, however, were generally unpleasant especially with respect to loan recovery performance from the farmers themselves. Dur ing the fiscal year 1995/96, the Government again is to provide an "Entandikwa Credit Scheme" which is implimented through local governments and NGOs. Although there may be an enormous expansion offormal credit funds from government owned or sponsored rural financial institutions and NGOs, loans have always frequently been skewed in favour of the wealthier and influential individuals. The rural poor have little access to credit from formal institutions. The credit needs ofthe poor are still served by the informal money lenders who are either rich land owners or traders. The existence ofthe informal lenders may be attributed to a rich variety of contractual relations that enables them to solve the information problems that are currently beyond the ability ofbanks and cooperative societies.